HONG KONG (Indonesia Today) Moody’s Investors Service sees only a moderate, direct impact of an expected European recession for most Asian (ex-Japan) corporate issuers. However, the rating agency says that indirect risks are rising as weak exports to the European Union (EU) are contributing to a slowdown in Asia.
“Over 95% of our rated corporates in Asia (ex-Japan) should remain resilient to the direct impact of the ongoing economic turmoil in the EU because they generate less than 15% of their reported 2011 revenue from there and have limited dependence on European banks for funding,” says Ping Luo, a Moody’s vice president & senior analyst.
Luo was speaking on Moody’s release of a report to assess rated Asian corporates’ exposure to a looming EU recession. Luo and Chris Park, a Moody’s vice president & senior credit officer, co-authored the report.
Moody’s notes that, of 11 rated Asian corporates generating over 15% of their revenue in the EU, BW Group (Ba2 negative) and Tata Steel (Ba3 negative) are most vulnerable, due to the two firms’ big European businesses and operational cyclicality.
The credit profile of other rated Asian (ex Japan) corporates with large EU revenue exposure, such as Hutchison Whampoa (A3 negative) and Tata Motors (Ba3 stable), have experienced less impact from the EU because their European-based operations have shown resilience.
“However, a broader effect of Europe’s stagnation on Asian corporate issuers is increasingly visible across Asia, as slowing exports to Europe contribute to a slower pace in Asia’s economic growth,” Park says. He adds, “Firms in cyclical industries, such as shipping, ports, consumer electronics, chemicals, mining, and steel, are more susceptible to such unfavorable macro fundamentals.”
As a result, the percentage of Asian issuers with negative outlooks increased to 22% as of June 2012 from 14% at year end 2011. Moreover, in the past few months, Moody’s took negative rating actions on a number of corporates in sectors exposed to slowing regional demand and economic growth, such as Indonesian coal miner Bumi Resources (B1 stable), and Korean steelmaker POSCO (A3 review for downgrade). (Indonesia Today)